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Apple Wireless vs. AT&T, Verizon? Not So Fast

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May 08 2012 @ 16:07

Several analysts view with skepticism the idea that Apple would jump into the competitive business of selling mobile voice and data services directly to its vast base of loyal iPhone and iPad customers.

“I don’t believe that the probability of this happening is high or realistic,” said wireless analyst Chetan Sharma, the president of a management consulting and strategic advisory firm. “The service business margins are quite different and it doesn’t make sense for Apple to get into the business.”

Michael Morgan, senior analyst for mobile devices with ABI Research, is highly skeptical that Apple has a good reason to become a full-fledged wireless carrier like the giant U.S. carriers that package its iPhones with data plans.

“To me you are not a wireless carrier until you own spectrum,” Morgan told us.

Whitey Bluestein, a wireless industry strategist, recently predicted that Apple would soon begin providing mobile-phone services directly to its huge customer base and commence its wireless journey by offering mobile-data plans that are bundled with iPads.

Morgan viewed that step as a logical one for Apple, reasoning that the consumer electronics giant might have better success than the U.S. carriers bundling data services with iPads. Unlike the case with iPhones, many consumers today aren’t buying data packages with iPads because they are using the tablet for Wi-Fi connectivity rather than a cellular connection, the analyst said.

“When you have that situation, that means operators aren’t going to have much success trying to subsidize the devices,” he said.

If Apple wanted to sell data services directly to its iPad customers, it likely would have to buy data capacity from the very carriers that now sell its devices because Apple doesn’t own a wireless network. The likes of AT&T and Verizon might perceive such a move as a threat to their businesses, but they would at least have some leverage over Apple since they would set the wholesale prices that Apple would have to pay them.

Bluestein doesn’t think Apple will stop at offering mobile-data plans. The former MCI Communications executive predicts Apple eventually will provide voice, data and messaging plans directly to its iPhone customers on an a la carte basis, reflecting an alternative to their current mobile operator.

Carl Howe, vice president of Yankee Group’s Consumer Research group, acknowledges Apple could become a so-called mobile virtual network operator or MVNO.

“This is not technically hard to do,” he said. “But I think they’d have to think long and hard about whether they would want to alienate their carrier customers who have done quite a lot of work with them selling their products by creating their own service.”

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Another challenge, the analyst said, would be determining where Apple would become an MVNO. Based in Cupertino, Calif., Apple is not simply a wildly successful American company doing business in America. For instance, before it even launched its most recent model in October, Apple’s iPhone was distributed in 105 countries through 228 carriers.

“Overall while I think Apple would like to be able to control more of the consumer experience, I am somewhat skeptical they will go in this direction … certainly in the developed market,” Howe said. “They might do it in some less developed markets where there is not a clear incumbent to work with.”

Bluestein indicated that Apple has all the building blocks for a successful wireless business: a leading brand, vast distribution through 363 Apple Stores and digital content including applications, music and video.

Analysts, though, question why one of the most profitable companies on earth would want to get into a business with lower margins than the ones it currently enjoys.

“How much money do they have and why would they want to go into something that is maybe not as profitable,” asked Peter Jarich, Current Analysis’ service director for Service Provider Infrastructure.

Joining the likes of AT&T and Verizon in the wireless carrier market just doesn’t make business sense, argued Morgan of ABI Research. “They’d have to blow all of their $100 billion in cash” in exchange for a lower return on investment than what they receive from their Phones, he said of Apple, whose most recent quarterly profit totaled $11.6 billion.

In some respects, Apple is already providing services in the wireless business that are eating into carrier revenues. Analysts cite as an example its iOS messaging app. Both Apple and Google, Ovum chief telecoms analyst Jan Dawson wrote earlier this year, “are becoming the de facto suppliers of content, applications and services on mobile devices, and displacing operators in the process.”

U.S. operators like AT&T, Sprint and Verizon, in all likelihood, would not take kindly to Apple attempting to woo their customers, especially considering the enormous investments they have made in the iPhone. Already, some of Apple’s offerings like its iOS messaging may be perceived as competitive to its carrier partners, Jarich of Current Analysis said.

“How much more stressful is that relationship going to be when they are directly competing,” the analyst said.

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